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3 reasons why the Italian economy is crucial for Europe and the EU

on Sep 26, 2022
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  • Political stability in Italy may end up being hawkish for the euro
  • Italy is the second-largest industrial economy in Europe
  • A new government is expected to be announced in the next few weeks

Elections in Italy took place over the weekend. Despite the record low turnout, the outcome shows a right-wing win and a government to follow in the next few weeks.

Italy has been at the forefront for years as one of the European economies in trouble. For instance, the European Central Bank (ECB) has been accused for many years that it prioritizing Italian debt over other countries.

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Southern states, in fact, were always accused by the frugal, North states, of reckless spending, among others. So let us debunk three myths about the Italian economy and why it has a crucial role in Europe and the European Union.

Italians consume less than they produce

One of the major myths about Italy and Italians is that the country consumes more than it produces. However, this is untrue.

Even during the COVID-19 pandemic, Italy has exported more goods and services than it had imported. More precisely, in the last decade, Italy’s exports exceeded imports.

Italy is the second-largest industrial economy in Europe

Few are aware of Italy’s importance in the industrial economic space in Europe. The country has the second-largest industrial economy in the European Union, outpaced only by Germany.

It is ahead of France or Spain, which may come as a surprise to many investors.

Low private sector debt level

The private sector debt as a percentage of the economy is way lower in Italy than in other OECD countries. Therefore, those complaining about the Italian debt problem should also mention that private sector debt is lower than in Switzerland, the Netherlands, or Sweden.

Italy, therefore, is a pillar of the European Union and one of the largest economies in the euro area. What happens in Italy matters for financial markets, and yesterday’s elections triggered some fears regarding the outcome.

In fact, most of the common currency’s weakness today is attributed to the Italian election outcome. However, the right-wing political alliance may bring an era of political stability in turmoil times.

Therefore, the election outcome may eventually become a hawkish event for the euro.